Tough Day at the Office for Riksbank Governor

It was a somber Stefan Ingves, who spoke at the Riksbank’s post rate decision press conference in Stockholm Thursday.

He managed the usual pleasantries but his presentation lacked much of its usual dry humor and it wasn’t hard to understand why.

It is bad enough that his central bank has failed to hit its inflation target for two and a half years but now even some of his most reliable policy allies on the executive board have left Mr. Ingves’s side.

Both Per Jansson and Cecilia Skingsley decided at yesterday’s meeting that they could no longer stand behind the governor’s policy stance and they voted with the more dovish Karolina Ekholm and Martin Floden to cut the main repo rate to 0.25% from 0.75% in a decision announced today.

Mr. Ingves and his first deputy Kerstin af Jochnick were left to argue for a smaller cut to 0.5%, mainly on the grounds that lower borrowing costs mean higher levels of household borrowing, which could mean increased financial instability.

It can’t have been easy to be the first Riksbank governor since the bank’s was granted independence in 1999 to be outvoted, but it says something of the strength of Mr. Ingves’s conviction that he stuck with his line.

Yes, inflation is too low, yes, the repo rate needed to be lower, but couldn’t the bank make do with a quarter percentage point cut? That was Mr. Ingves stance and it reflects the fact that he was the policy maker who was charged with cleaning up the mess after Sweden’s awful financial crisis in the early 1990s.

He has seen first hand what an asset price bubble can do when it pops and he wants to do all he can to prevent another. He said at his press conference that the differences on the board are just “nuances” and there is something to that.

They agree about the general direction of the economy and where rates need to go. It is also a sign of health that the board members feel they are free to vote for the stance they feel most comfortable with and then stand for that.

Still, it is hard to think that Mr. Ingves was a happy man when he woke up this morning.

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